P = Q MR = Q


 Robyn Gilmore
 1 years ago
 Views:
Transcription
1 1. A firm operating in a monopolistically competitive market faces demand and marginal revenue curves as given below: The firm's total and marginal cost curves are: P = Q MR = Q TC =  10Q Q MC = Q 2, where P is in dollars per unit, output rate Q is in units per time period, and total cost C is in dollars. Determine the price and output rate that will allow the firm to maximize profit or minimize losses. Compute a Lerner index. Calculate MR and equate it to MC. MC = MR Q 2 = Q 0.1Q Q  20 = 0 The quadratic formula yields: Q 1 = Q 2 = Use Q 1 since negative quantities are not meaningful. At Q 1 = P = (13.17) = 8.68 Computation of monopoly power. The Lerner index is computed below: L P = MC P At Q = 13.17, P = 8.68, and MC = 7.34 L = ( )/8.68 = L = =
2 2. Bartels and Jaymes are two individuals who one day discover a stream that flows wine cooler instead of water. Bartels and Jaymes decide to bottle the wine cooler and sell it. The marginal cost of bottling wine cooler and the fixed cost to bottle wine cooler are both zero. The market demand for bottled wine cooler is given as: P = Q where Q is the total quantity of bottled wine cooler produced and P is the market price of bottled wine cooler. What is the economically efficient price of bottled wine cooler? What is the economically efficient quantity of bottled wine cooler produced? c. If Bartels and Jaymes were to collude with one another and produce the profitmaximizing monopoly quantity of bottled wine cooler, how much bottled wine cooler will they produce? d. Given the output level in (c), what price will Bartels and Jaymes charge for bottled wine cooler? e. At the output level in (c), what is the welfare loss? f. Suppose that Bartels and Jaymes act as Cournot duopolists, what are the reaction functions for Bartels and for Jaymes? g. In the long run, what level of output will Bartels produce if Bartels and Jaymes act as Cournot duopolists? h. In the long run, what will be the price of wine coolers be if Bartels and Jaymes act as Cournot duopolists? Suppose that after Bartels and Jaymes have arrived at their long run equilibrium as Cournot duopolists, another individual, Paul Mason, discovers the streams. Paul Mason, who will sell no wine cooler before its time, decides to bottle wine coolers. There are now three Cournot firms producing at once. In the long run, what level of output will Bartels produce? c. The economically efficient level of price is found where price equals marginal cost. The marginal cost is zero. Therefore, the efficient price is zero. At a price of zero, Q = 360. The profit maximizing level of output is found where MR = MC. The MR curve has the same price intercept as the demand curve and is twice as steep. Thus, a monopolist will produce half as much as the competitive level (this is only true because marginal cost is constant). The competitive level of output is 360. Therefore, the monopoly level of output is 180. Mathematically, the marginal revenue curve is: MR = Q Equating MR to MC yields: Q = 0 Q = 180
3 d. e. f. When Q = 180 we have P = (180) = 45. The welfare loss is the value of the output that would have been produced under the conditions of economic efficiency, but is not produced due to the monopoly. This is the area of the triangle from Q = 180 to Q = 360, under the demand curve. The base of the triangle is 180, the height of the triangle is 45, and therefore the welfare loss is (1/2)(180)(45) = 4,050. The Cournot equilibrium is found by using the reaction curves of the two firms to solve for levels of output. The reaction curve for firm 1 (Bartels) is found as follows: R 1 = PQ 1 = ( Q)Q 1 = 90Q (Q 1 + Q 2 )Q 1 = 90Q Q Q 2 Q 1 The firm's marginal revenue MR 1 is just the incremental revenue dr 1 resulting from an incremental change in output dq 1 : MR 1 = dr 1 /dq 1 = Q Q 2 Setting MR 1 equal to zero (the firm's marginal cost) and solving for Q 1 yields the reaction curve for Q 1 : Firm 1's Reaction Curve: Q 1 = (1/2)Q 2 Going through the same calculations for firm 2 yields: Firm 2's Reaction Curve: Q 2 = (1/2)Q 1 g. h. i. Solving the reaction curves simultaneously for Q 1 and Q 2 yields: Q 1 = Q 2 = 120. The total output is 240 (120 by each firm). Therefore: P = (240) = 30. The Cournot equilibrium for three firms is found by solving the reaction curves of the three firms simultaneously for levels of output. The reaction curve for firm 1 (Bartels) is found as follows: R 1 = PQ 1 = ( Q)Q 1 = 90Q (Q 1 + Q 2 + Q 3 )Q 1 = 90Q Q Q 2 Q Q 3 Q 1 The firm's marginal revenue MR 1 is just the incremental revenue dr 1 resulting from an incremental change in output dq 1 : MR 1 = dr 1 /dq 1 = Q Q Q 3 Setting MR 1 equal to zero (the firm's marginal cost) and solving for Q 1 yields the reaction curve for Q 1 : Firm 1's Reaction Curve: Q 1 = Q 20.5Q 3 Going through the same calculations for firm 2 yields:
4 Firm 2's Reaction Curve: Q 2 = Q 10.5Q 3 Going through the same calculations for firm 3 yields: Firm 3's Reaction Curve: Q 3 = Q 20.5Q 3 Solving the reaction curves simultaneously for Q 1, Q 2 and Q 3 yields: Q 1 = Q 2 = Q 3 = LambertRogers Company is a manufacturer of petrochemical products. The firm's research efforts have resulted in the development of a new auto fuel injector cleaner that is considerably more effective than other products on the market. Another firm, G.H. Squires Company, independently developed a very similar product that is as effective as the Lambert Rogers formul To avoid a lengthy court battle over conflicting patent claims, the two firms have decided to crosslicense each other's patents and proceed with production. It is unlikely that other petrochemical companies will be able to duplicate the product, making the market a duopoly for the foreseeable future. LambertRogers estimates the demand curve given below for the new cleaner. Marginal cost is estimated to be a constant $2 per bottle. Q = 300,00025,000P. where P = dollars per bottle and Q = monthly sales in bottles. LambertRogers and G.H. Squires have very similar operating strategies. Consequently, the management of LambertRogers believes that the Cournot model is appropriate for analyzing the market, provided that both firms enter at the same time. Calculate Lambert Rogers' profitmaximizing output and price according to this model. LambertRogers' productive capacity and technical expertise could allow them to enter the market several months before Squires. Choose an appropriate model and analyze the impact of Lambert Rogers being first into the market. Should LambertRogers hurry to enter first? Denote LambertRogers price and quantity as P L, Q L and Squires as P S, Q S. Demand function is given as: Q = 300,00025,000P Solve for P: Q  300,000 = 25,000P P = Q
5 Outcome under Cournot model: TR L = P L Q L TR L = ( Q)Q L Q = Q L + Q S TR L = [ (Q L + Q S )]Q L TR L = 12Q L Q 2 L Q L Q S MR L = Q L Q S Set MR L = MC Q L Q S = Q L Q S = 10 Q L = 125, Q S So, Q S = 125, Q L Substitute for Q S : Q L = 62, Q L Q L = 62, = 83,333 Q = Q L + Q S Q = 83, ,333 = 166,666 P = (166,666) P = = $5.33 P = $5.33 per bottle 166,666 bottles sold per month The Stackelberg model is appropriate when one firm enters first. LambertRogers determines its output, which Squires then takes as given. Lambert's total revenue function is given as: TR L = 12Q L Q L Q L Q S
6 Squires reaction function Q S = 125, Q L can be substituted into TR L, since Squires will take Lambert's output as given. TR L = 12Q L Q L Q L (125, Q L ) TR L = 12Q L Q L 25Q L Q L 2 TR L = 7Q L Q L 2 MR L = Q L Set MR L = MC Q L = Q L = 5 Q L = 125,000 To find Q S substitute Q L into S reaction function Q S = 125, Q L Q S = 125, (125,000) Q S = 62,500 Q = Q L + Q S Q = 125, ,500 Q = 187,500 P = (187,500) P = = $4.50 LambertRogers gets a much larger share of the market by entering first. It should advance its schedule in order to enter first.
7 4. The two leading U.S. manufacturers of high performance radial tires must set their advertising strategies for the coming year. Each firm has two strategies available: maintain current advertising or increase advertising by 15%. The strategies available to the two firms, G and B, are presented in the payoff matrix below. Firm G Firm B Increase Adv. Maintain Adv. Increase Adv. 27, 27 50, 12 Maintain Adv. 12, 50 45, 45 The entries in the individual cells are profits measured in millions of dollars. Firm G's outcome is listed before the comma, and Firm B's outcome is listed after the comm Which oligopoly model is best suited for analyzing this decision? Why? (Remember it is illegal to collude in the United States.) Carefully explain the strategy that should be used by each firm. Support your choice by including numbers. The prisoner's dilemma model is most appropriate for analyzing this situation. We can conclude that the prisoner's dilemma is most appropriate because each firm must set its advertising strategy without knowledge of the rival's strategy. Increasing the advertising level is the dominant strategy, since the firm is better off increasing regardless of the rival's action. For example, if Firm B increases, Firm G earns 27 if it increases and 12 if it does not increase. G is better off increasing. If Firm B doesn't increase, Firm G earns 45 by not increasing and 50 by increasing. Again, Firm G is better off to increase. It is obvious that no matter what B does, G is better off to increase. Firm B faces the same situation. 5. The market for an industrial chemical has a single dominant firm and a competitive fringe comprised of many firms that behave as price takers. The dominant firm has recently begun behaving as a price leader, setting price while the competitive fringe follows. The market demand curve and competitive fringe supply curve are given below. Marginal cost for the dominant firm is $0.75 per gallon. Q M = 140,00032,000P Q F = 60, ,000P, where Q M = market quantity demanded, and Q F = the supply of the competitive fringe. Quantities are measured in gallons per week, and price is measured as a price per gallon. Determine the price and output that would prevail in the market under the conditions described above. Identify output for the dominant firm as well as the competitive fringe. Assume that demand curve shifts rightward by 40,000 units. Show that the dominant firm is indeed a price leader. What output (leader and follower) and market price will prevail after the change in demand?
8 Q M = 140,00032,000P Q F = 60, ,000P Denote dominant firm demand curve as Q D. Q D = Q M  Q F Q D = 140,00032,000P  (60, ,000P) Q D = 80,00040,000P Solve for P Q D  80,000 = 40,000P P = Q D MR D = Q D Marginal cost for the dominant firm is $0.75. Equate MR D to MC D Q D = Q D = Q D = 25,000 P = (25,000) P = = per gallon Fringe takes dominant firm price as given Q F = 60, ,000(1.375) Q F = 71,000 Q T = 25, ,000 = 96,000 A 40,000 increase in demand curve to: Q M = 180,00032,000P Q F = 60, ,000P Q D = 180,00072,000P  (60, P) Q D = 120,00040,000P Solve for P Q D  120,000 = 40,000P P D = Q D MR D = Q D setting MR D = MC D Q D = Q D = Q D = 45,000 P D = (45,000) P D = = $1.875 Fringe again follows Q F = 60, ,000(1.875) Q F = 75,000
9 Q T = 45, ,000 = 120,000 We can see that when demand changed, the dominant firm raised price. The competitive fringe took the new price as given and adjusted output accordingly. 6. Consider two identical firms (no. 1 and no. 2) that face a linear market demand curve. Each firm has a marginal cost of zero and the two firms together face demand: P = Q, where Q = Q1 + Q2. Find the Cournot equilibrium Q and P for each firm. Find the equilibrium Q and P for each firm assuming that the firms collude and share the profit equally. c. Contrast the efficiencies of the markets in (a) and (b) above. Determine the reaction curve for no. 1. Equate MR 1 to MC 1. R 1 = P 1 Q 1 = (500.5Q)Q 1 = 50Q 10.5QQ 1 = 50Q 10.5(Q 1 + Q 2 )Q 1 = 50Q 10.5Q Q 1 Q 2 MR 1 = 501Q 10.5Q 2. Since MC 1 = 0, then 501Q 10.5Q 2 = 0 Q 1 = Q 2 The reaction curve for firm no. 2 is calculated in the same way as that for firm no. 1. Q 2 = Q 1 At the intersection of two reaction curves, we find the equilibrium Q 1 and Q 2. By substitution: Q 2 = (500.5Q 2 ) Q 2 = Q Q 2 = 25 Q 2 = 33.33
10 Now solve for Q 1 : Q 1 = Q 2 = (33.33) = The total quantity produced Q = Q 1 + Q 2 = The market equilibrium price is: P = 505Q = (66.67) = $16.67/unit. Each firm is maximizing its own profit, given its competitor's production rate. The total revenue for the two firms is: R = PQ  (500.5Q)Q = 50Q  0.5Q 2, and thus MR = 50  Q Set MR equal to MC = 0 to find Q that maximizes profit Q = 0 Q = 50 If profit is shared equally, then Q 1 = Q 2 = 25. The collusive price is P = (50) = 25. c. When competing, each firm produces at a price of 16.67; and when colluding, each produces 25 at a price of 25. The market is more efficient when the firms compete, because in this situation selling price is more nearly equal to marginal cost. D D 7. The demand for online brokerage services is: Q = 6, P P = Q. If the online brokerage firms collude, the collusive marginal revenue function is: MR ( Q) = Q. MC1 ( q1 ) = 1.5q1 MC2 ( q2 ) = 2.0 q2 The brokerage firm specific marginal cost functions are:. Calculate the MC3 ( q3 ) = 2.5q3 MC4 ( q4 ) = 3.0q4 collusive output level and market price. If the brokerage firms behaved competitively and each firm set its own marginal cost equal to price, what would be the output level and market price?
11 2 q1 = MC 3 MC1 ( q1 ) = 1.5q 1 1 q2 = MC MC2 ( q2 ) = 2.0q2 2. MC3 ( q3 ) = 2.5q3 2 q3 = MC 4 ( 4 ) = 3.0 MC q q q4 = MC = = This implies the collusive supply sets S Q MC MC The collusive marginal cost function is: 10 MC =. 19 Q The collusive profit maximization level sets marginal cost equal to marginal revenue. This is: = = Q Q Q The resulting price is $ If brokerage firms behave competitively, each firm sets marginal cost equal to price. Thus, 2 q1 = P 3 MC ( q ) = 1.5q 1 = MC ( q ) q MC3 ( q3 ) = 2.5q3 2 q3 = P 4 ( 4 ) = 3.0 MC q q q4 = P = = q2 P 2 2 = This implies competitive supply is S Q P P Setting supply equal to demand and solving for market price gives us the competitive solution. This is: 19 P = P P = The competitive market output level is
Mikroekonomia B by Mikolaj Czajkowski. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Mikroekonomia B by Mikolaj Czajkowski Test 12  Oligopoly Name Group MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The market structure in which
More informationEconomics 201 Fall 2010 Introduction to Economic Analysis Problem Set #6 Due: Wednesday, November 3
Economics 201 Fall 2010 Introduction to Economic Analysis Jeffrey Parker Problem Set #6 Due: Wednesday, November 3 1. Cournot Duopoly. Bartels and Jaymes are two individuals who one day discover a stream
More informationEconomics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400
Page 1 March 19, 2012 Section 1: Test Your Understanding Economics 203: Intermediate Microeconomics I Lab Exercise #11 The following payoff matrix represents the longrun payoffs for two duopolists faced
More informationMarket Structure: Duopoly and Oligopoly
WSG10 7/7/03 4:24 PM Page 145 10 Market Structure: Duopoly and Oligopoly OVERVIEW An oligopoly is an industry comprising a few firms. A duopoly, which is a special case of oligopoly, is an industry consisting
More informationOligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.
Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry
More informationPrice competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
More informationChapter 12 Monopolistic Competition and Oligopoly
Chapter Monopolistic Competition and Oligopoly Review Questions. What are the characteristics of a monopolistically competitive market? What happens to the equilibrium price and quantity in such a market
More informationCHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY
CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of .0. It has a constant marginal cost of $0 per unit and sets a price to maximize
More informationManagerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models
Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings
More information12 Monopolistic Competition and Oligopoly
12 Monopolistic Competition and Oligopoly Read Pindyck and Rubinfeld (2012), Chapter 12 09/04/2015 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition
More informationINDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK
UNIT EC407, LEVEL 2 INDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK Semester 1 1998/99 Lecturer: K. Hinde Room: 427 Northumberland Building Tel: 0191 2273936 email: kevin.hinde@unn.ac.uk Web Page:
More informationCHAPTER 6 MARKET STRUCTURE
CHAPTER 6 MARKET STRUCTURE CHAPTER SUMMARY This chapter presents an economic analysis of market structure. It starts with perfect competition as a benchmark. Potential barriers to entry, that might limit
More informationMicroeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy
Microeconomics Claudia Vogel EUV Winter Term 2009/2010 Claudia Vogel (EUV) Microeconomics Winter Term 2009/2010 1 / 25 Lecture Outline Part III Market Structure and Competitive Strategy 12 Monopolistic
More informationChapter 9 Basic Oligopoly Models
Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models McGrawHill/Irwin Copyright 2010 by the McGrawHill Companies, Inc. All rights reserved. Overview I. Conditions for Oligopoly?
More informationThe Basics of Game Theory
Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #7 The Basics of Game Theory Friday  November 5, 2004 OUTLINE OF TODAY S RECITATION 1. Game theory definitions:
More informationUnit 7. Firm behaviour and market structure: monopoly
Unit 7. Firm behaviour and market structure: monopoly Learning objectives: to identify and examine the sources of monopoly power; to understand the relationship between a monopolist s demand curve and
More informationOligopoly and Strategic Pricing
R.E.Marks 1998 Oligopoly 1 R.E.Marks 1998 Oligopoly Oligopoly and Strategic Pricing In this section we consider how firms compete when there are few sellers an oligopolistic market (from the Greek). Small
More informationAGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table.
AGEC 105 Spring 2016 Homework 7 1. Consider a monopolist that faces the demand curve given in the following table. a. Fill in the table by calculating total revenue and marginal revenue at each price.
More informationMarket Structure: Perfect Competition and Monopoly
WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit
More informationUniversity of Hong Kong ECON6021 Microeconomic Analysis Oligopoly
1 Introduction University of Hong Kong ECON6021 Microeconomic Analysis Oligopoly There are many real life examples that the participants have nonnegligible influence on the market. In such markets, every
More informationc. Given your answer in part (b), what do you anticipate will happen in this market in the longrun?
Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm
More informationFinal Exam 15 December 2006
Eco 301 Name Final Exam 15 December 2006 120 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. Part 1 (10 points each) 1. As
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chap 13 Monopolistic Competition and Oligopoly These questions may include topics that were not covered in class and may not be on the exam. MULTIPLE CHOICE. Choose the one alternative that best completes
More informationA Detailed Price Discrimination Example
A Detailed Price Discrimination Example Suppose that there are two different types of customers for a monopolist s product. Customers of type 1 have demand curves as follows. These demand curves include
More informationCHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition
CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates
More informationExtreme cases. In between cases
CHAPTER 16 OLIGOPOLY FOUR TYPES OF MARKET STRUCTURE Extreme cases PERFECTLY COMPETITION Many firms No barriers to entry Identical products MONOPOLY One firm Huge barriers to entry Unique product In between
More informationChapter 13 Market Structure and Competition
Chapter 13 Market Structure and Competition Solutions to Review Questions 1. Explain why, at a Cournot equilibrium with two firms, neither firm would have any regret about its output choice after it observes
More informationWeek 7  Game Theory and Industrial Organisation
Week 7  Game Theory and Industrial Organisation The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry structures with a small number of firms. There are a number
More informationEconomics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.
Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a
More informationECON101 STUDY GUIDE 7 CHAPTER 14
ECON101 STUDY GUIDE 7 CHAPTER 14 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) An oligopoly firm is similar to a monopolistically competitive
More informationchapter: Solution Oligopoly 1. The accompanying table presents market share data for the U.S. breakfast cereal market
S209S220_Krugman2e_PS_Ch15.qxp 9/16/08 9:23 PM Page S209 Oligopoly chapter: 15 1. The accompanying table presents market share data for the U.S. breakfast cereal market in 2006. Company a. Use the data
More informationDo not open this exam until told to do so.
Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Winter 004 Final (Version ): Intermediate Microeconomics (ECON30) Solutions Final
More informationEconomics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013
Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on
More informationUNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition
UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on
More informationOligopoly is a market structure more susceptible to gametheoretic analysis, because of apparent strategic interdependence among a few producers.
1 Market structure from a gametheoretic perspective: Oligopoly After our more theoretical analysis of different zerosum and variablesum games, let us return to the more familiar territory of economicsespecially
More information5. Suppose demand is perfectly elastic, and the supply of the good in question
ECON 1620 Basic Economics Principles 2010 2011 2 nd Semester Mid term test (1) : 40 multiple choice questions Time allowed : 60 minutes 1. When demand is inelastic the price elasticity of demand is (A)
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The fourfirm concentration ratio equals the percentage of the value of accounted for by the four
More informationPractice Questions Week 8 Day 1
Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants
More informationCompetition and Regulation. Lecture 2: Background on imperfect competition
Competition and Regulation Lecture 2: Background on imperfect competition Monopoly A monopolist maximizes its profits, choosing simultaneously quantity and prices, taking the Demand as a contraint; The
More informationOligopoly. Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly. Interdependence.
Oligopoly Chapter 162 Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly An oligopoly is a market structure characterized by: Few firms Either standardized or
More informationEcn 221  Unit 10 Monopolistic Competition & Oligopoly
Ecn 221  Unit 10 Monopolistic Competition & Oligopoly An industry characterized by monopolistic competition is similar to the case of perfect competition in that there are many firms, and entry into the
More informationChapter 16 Oligopoly. 16.1 What Is Oligopoly? 1) Describe the characteristics of an oligopoly.
Chapter 16 Oligopoly 16.1 What Is Oligopoly? 1) Describe the characteristics of an oligopoly. Answer: There are a small number of firms that act interdependently. They are tempted to form a cartel and
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Economics 103 Spring 2012: Multiple choice review questions for final exam. Exam will cover chapters on perfect competition, monopoly, monopolistic competition and oligopoly up to the Nash equilibrium
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that
More informationa. Retail market for water and sewerage services Answer: Monopolistic competition, many firms each selling differentiated products.
Chapter 16 1. In which market structure would you place each of the following products: monopoly, oligopoly, monopolistic competition, or perfect competition? Why? a. Retail market for water and sewerage
More informationChapter 13 Oligopoly 1
Chapter 13 Oligopoly 1 4. Oligopoly A market structure with a small number of firms (usually big) Oligopolists know each other: Strategic interaction: actions of one firm will trigger reactions of others
More informationAggressive Advertisement. Normal Advertisement Aggressive Advertisement. Normal Advertisement
Professor Scholz Posted: 11/10/2009 Economics 101, Problem Set #9, brief answers Due: 11/17/2009 Oligopoly and Monopolistic Competition Please SHOW your work and, if you have room, do the assignment on
More informationEC508: Microeconomic Theory Midterm 3
EC508: Microeconomic Theory Midterm 3 Instructions: Neatly write your name on the top right hand side of the exam. There are 25 points possible. Your exam solution is due Tuesday Nov 24, 2015 at 5pm. You
More informationECON 103, 20082 ANSWERS TO HOME WORK ASSIGNMENTS
ECON 103, 20082 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot
More informationChapter 7 Monopoly, Oligopoly and Strategy
Chapter 7 Monopoly, Oligopoly and Strategy After reading Chapter 7, MONOPOLY, OLIGOPOLY AND STRATEGY, you should be able to: Define the characteristics of Monopoly and Oligopoly, and explain why the are
More informationAll these models were characterized by constant returns to scale technologies and perfectly competitive markets.
Economies of scale and international trade In the models discussed so far, differences in prices across countries (the source of gains from trade) were attributed to differences in resources/technology.
More informationFigure: Computing Monopoly Profit
Name: Date: 1. Most electric, gas, and water companies are examples of: A) unregulated monopolies. B) natural monopolies. C) restrictedinput monopolies. D) sunkcost monopolies. Use the following to answer
More informationImperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers
Imperfect Competition Oligopoly Chapter 16 Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Copyright 2001 by Harcourt, Inc. All rights reserved.
More informationManagerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect
More informationIndustrial Organization Answer Key to Assignment # 1
Trinity College Dublin Instructor: Martin Paredes Department of Economics Michaelmas Term 006 Industrial Organization Answer Key to Assignment # 1 1. What are the economic costs of operating the restaurant
More informationProblems on Perfect Competition & Monopoly
Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In longrun equilibrium, every firm in a perfectly
More informationchapter: Oligopoly Krugman/Wells Economics 2009 Worth Publishers 1 of 35
chapter: 15 >> Oligopoly Krugman/Wells Economics 2009 Worth Publishers 1 of 35 WHAT YOU WILL LEARN IN THIS CHAPTER The meaning of oligopoly, and why it occurs Why oligopolists have an incentive to act
More information4. Market Structures. Learning Objectives 463. Market Structures
1. Supply and Demand: Introduction 3 2. Supply and Demand: Consumer Demand 33 3. Supply and Demand: Company Analysis 43 4. Market Structures 63 5. Key Formulas 81 2014 Allen Resources, Inc. All rights
More informationLECTURE #15: MICROECONOMICS CHAPTER 17
LECTURE #15: MICROECONOMICS CHAPTER 17 I. IMPORTANT DEFINITIONS A. Oligopoly: a market structure with a few sellers offering similar or identical products. B. Game Theory: the study of how people behave
More informationLearning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly
Chapter 6 The Two Extremes: Perfect Competition and Pure Monopoly Learning Objectives List the four characteristics of a perfectly competitive market. Describe how a perfect competitor makes the decision
More informationNew Technology and Profits
Another useful comparative statics exercise is to determine how much a firm would pay to reduce its marginal costs to that of its competitor. This will simply be the difference between its profits with
More informationECON 600 Lecture 3: Profit Maximization Π = TR TC
ECON 600 Lecture 3: Profit Maximization I. The Concept of Profit Maximization Profit is defined as total revenue minus total cost. Π = TR TC (We use Π to stand for profit because we use P for something
More informationCEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.
1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market
More informationChapter 11. T he economy that we. The World of Oligopoly: Preliminaries to Successful Entry. 11.1 Production in a Nonnatural Monopoly Situation
Chapter T he economy that we are studying in this book is still extremely primitive. At the present time, it has only a few productive enterprises, all of which are monopolies. This economy is certainly
More informationFinal Exam (Version 1) Answers
Final Exam Economics 101 Fall 2003 Wallace Final Exam (Version 1) Answers 1. The marginal revenue product equals A) total revenue divided by total product (output). B) marginal revenue divided by marginal
More informationPricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young
Chapter 9 Pricing and Output Decisions: i Perfect Competition and Monopoly M i l E i E i Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Pricing and
More informationMODULE 64: INTRODUCTION TO OLIGOPOLY Schmidty School of Economics. Wednesday, December 4, 2013 9:20:15 PM Central Standard Time
MODULE 64: INTRODUCTION TO OLIGOPOLY Schmidty School of Economics Learning Targets I Can Understand why oligopolists have an incentive to act in ways that reduce their combined profit. Explain why oligopolies
More informationCooleconomics.com Monopolistic Competition and Oligopoly. Contents:
Cooleconomics.com Monopolistic Competition and Oligopoly Contents: Monopolistic Competition Attributes Short Run performance Long run performance Excess capacity Importance of Advertising Socialist Critique
More informationChapter 13 Perfect Competition
Chapter 13 Perfect Competition 13.1 A Firm's ProfitMaximizing Choices 1) What is the difference between perfect competition and monopolistic competition? A) Perfect competition has a large number of small
More informationEconS 301 Review Session #8 Chapter 11: Monopoly and Monopsony
EconS 301 Review Session #8 Chapter 11: Monopoly and Monopsony 1. Which of the following describes a correct relation between price elasticity of demand and a monopolist s marginal revenue when inverse
More informationLesson 13 Duopoly. c 2010, 2011 Roberto Serrano and Allan M. Feldman All rights reserved Version C
Lesson 13. Duopoly 1 Lesson 13 Duopoly c 2010, 2011 Roberto Serrano and Allan M. Feldman All rights reserved Version C 1. Introduction In this lesson, we study market structures that lie between perfect
More information3.2. Cournot Model. Matilde Machado
Matilde Machado 1 Assumptions: All firms produce an homogenous product The market price is therefore the result of the total supply (same price for all firms) Firms decide simultaneously how much to produce
More informationEconomics 165 Winter 2002 Problem Set #2
Economics 165 Winter 2002 Problem Set #2 Problem 1: Consider the monopolistic competition model. Say we are looking at sailboat producers. Each producer has fixed costs of 10 million and marginal costs
More informationMeasuring Elasticity of Demand
C H A P T E R E I G H T P r i c e e l a s t i c i t y o f d e m a n d Measuring Elasticity of Demand Demand curves can have many different shapes and so it is important to derive a way to convey their
More informationCHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.)
CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.) Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates the
More information1 Monopoly Why Monopolies Arise? Monopoly is a rm that is the sole seller of a product without close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller
More informationANSWERS TO ENDOFCHAPTER QUESTIONS
ANSWERS TO ENDOFCHAPTER QUESTIONS 231 Briefly indicate the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications
More informationPreTest Chapter 23 ed17
PreTest Chapter 23 ed17 Multiple Choice Questions 1. The kinkeddemand curve model of oligopoly: A. assumes a firm's rivals will ignore a price cut but match a price increase. B. embodies the possibility
More informationMidterm Exam #1  Answers
Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.
More informationTable of Contents MICRO ECONOMICS
economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...
More informationChapter 15: Monopoly WHY MONOPOLIES ARISE HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS
Chapter 15: While a competitive firm is a taker, a monopoly firm is a maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The
More information13 MONOPOLISTIC COMPETITION AND OLIGOPOLY. Chapter. Key Concepts
Chapter 13 MONOPOLISTIC COMPETITION AND OLIGOPOLY Key Concepts Monopolistic Competition The market structure of most industries lies between the extremes of perfect competition and monopoly. Monopolistic
More informationExamples on Monopoly and Third Degree Price Discrimination
1 Examples on Monopoly and Third Degree Price Discrimination This hand out contains two different parts. In the first, there are examples concerning the profit maximizing strategy for a firm with market
More informationVariable Cost. Marginal Cost. Average Variable Cost 0 $50 $50 $0     1 $150 A B C D E F 2 G H I $120 J K L 3 M N O P Q $120 R
Class: Date: ID: A Principles Fall 2013 Midterm 3 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Trevor s Tire Company produced and sold 500 tires. The
More informationProfit maximization in different market structures
Profit maximization in different market structures In the cappuccino problem as well in your team project, demand is clearly downward sloping if the store wants to sell more drink, it has to lower the
More informationECON 40050 Game Theory Exam 1  Answer Key. 4) All exams must be turned in by 1:45 pm. No extensions will be granted.
1 ECON 40050 Game Theory Exam 1  Answer Key Instructions: 1) You may use a pen or pencil, a handheld nonprogrammable calculator, and a ruler. No other materials may be at or near your desk. Books, coats,
More informationChapter 11 Pricing Strategies for Firms with Market Power
Managerial Economics & Business Strategy Chapter 11 Pricing Strategies for Firms with Market Power McGrawHill/Irwin Copyright 2010 by the McGrawHill Companies, Inc. All rights reserved. Overview I. Basic
More informationINTRODUCTION OLIGOPOLY CHARACTERISTICS OF MARKET STRUCTURES DEGREES OF POWER DETERMINANTS OF MARKET POWER
INTRODUCTION Questions examined in this chapter include: What determines how much market power a firm has? How do firms in an oligopoly set prices and output? What problems does an oligopoly have in maintaining
More informationN. Gregory Mankiw Principles of Economics. Chapter 15. MONOPOLY
N. Gregory Mankiw Principles of Economics Chapter 15. MONOPOLY Solutions to Problems and Applications 1. The following table shows revenue, costs, and profits, where quantities are in thousands, and total
More informationSOLUTIONS TO HOMEWORK SET #4
Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology SOLUTIONS TO HOMEWORK SET #4 1. a. If the markets are open to free trade, the monopolist cannot keep the markets separated.
More information3.3 Applications of Linear Functions
3.3 Applications of Linear Functions A function f is a linear function if The graph of a linear function is a line with slope m and yintercept b. The rate of change of a linear function is the slope m.
More informationLecture 11: Oligopoly and Strategic Behavior
Lecture 11: Oligopoly and Strategic Behavior Few Firms in the Market: Each aware of others actions Each firm in the industry has market power Entry is Feasible, although incumbent(s) may try to deter it.
More informationOligopoly. Oligopoly is a market structure in which the number of sellers is small.
Oligopoly Oligopoly is a market structure in which the number of sellers is small. Oligopoly requires strategic thinking, unlike perfect competition, monopoly, and monopolistic competition. Under perfect
More informationChapter. Perfect Competition CHAPTER IN PERSPECTIVE
Perfect Competition Chapter 10 CHAPTER IN PERSPECTIVE In Chapter 10 we study perfect competition, the market that arises when the demand for a product is large relative to the output of a single producer.
More informationMicroeconomics II. ELTE Faculty of Social Sciences, Department of Economics. week 9 MARKET THEORY AND MARKETING, PART 3
MICROECONOMICS II. ELTE Faculty of Social Sciences, Department of Economics Microeconomics II. MARKET THEORY AND MARKETING, PART 3 Author: Supervised by February 2011 Prepared by:, using Jack Hirshleifer,
More informationUnderstanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen
Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Chapter 5 Perfect Competition Chapter Objectives! In this chapter you will: " Consider the four market structures, and the main differences
More informationChapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit
Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit 1) Accountants include costs as part of a firm's costs, while economists include costs. A) explicit; no explicit B) implicit;
More informationEconomics 201 Fall 2010 Introduction to Economic Analysis
Economics 201 Fall 2010 Introduction to Economic Analysis Jeffrey Parker Problem Set #5 Solutions Instructions: This problem set is due in class on Wednesday, October 13. If you get stuck, you are encouraged
More informationCommon in European countries government runs telephone, water, electric companies.
Public ownership Common in European countries government runs telephone, water, electric companies. US: Postal service. Because delivery of mail seems to be natural monopoly. Private ownership incentive
More informationMonopoly. Key differences between a Monopoly and Perfect Competition Perfect Competition
Monopoly Monopoly is a market structure in which one form makes up the entire supply side of the market. That is, it is the polar opposite to erfect Competition we discussed earlier. How do they come about?
More information